Proof of burn - a potential alternative to proof of work and proof of stake

[d5000]

I am reanimating this olde thread because I'm really interested in the Proof-of-burn concept as an alternative to PoW and PoS.

There is actually an altcoin using it, Slimcoin (https://bitcointalk.org/index.php?topic=613213.0). Unfortunately, the software is pretty unstable, with frequent forks ocurring, and the developer seems not able to fix the bugs of the client.

If there are any of the original inventors of Proof-of-burn left in this forum, I would be interested what they think of Slimcoin.

- Is the algorithm it uses for the PoB section sound?
- Would you design a PoB coin this way or differently?
- Are there chances for another PoB coin as a proof-of-concept?

(Disclaimer: I am not really invested in Slimcoin, bought only a few coins for cheap at BTER to try out the burn mechanism, but it's for now the only coin that uses PoB for blockchain maintenance and so I am following it.)

[Mr E]

Hi d5000, I'm also quite interested in proof-of-burn after recently reading the wiki page linked in the OP.

When I first read that and started searching, I found Counterparty, but after reading it I discovered that they only used PoB for initial bootstrapping by burning BtC for a limited time. Sad face.  I haven't found any others yet except slimcoin.

I've downloaded slimcoin and started playing with it a bit, though. I'm just really interested in the potential for running a cryptocurrency without the "wasted" power (etc) of running mining rigs (well, wasted unless it's a chilly winter, I guess...  ) and what potential weaknesses it might have that a PoW system doesn't.

[instagibbs]

When I first read that and started searching, I found Counterparty, but after reading it I discovered that they only used PoB for initial bootstrapping by burning BtC for a limited time. Sad face.  I haven't found any others yet except slimcoin.

CounterParty doesn't need another consensus mechanism, it's piggybacking off of Bitcoin's PoW. It would be silly to.

[topman21]

Interesting and need more time to learn more here.

[ScryptAsic]

Still don't get it how it works and how is it better?

[BitcoinFX]

Still don't get it how it works and how is it better?

Maybe it is or maybe it isn't ?

Is Slimcoin an entirely new Economic principal in practice ?

Slimcoin is something that is only made possible by the very foundation of crypto currency.

Imagine walking into your local bank, tearing up some bank notes of paper currency and then asking the desk clerk for a slightly higher fixed % rate of interest on your savings account because their is now less money in circulation. 

That is Slimcoin. Destruction of the existing money supply with the mathematical hope / chance of getting a larger return in the future based on that destruction and in essence what is also a deflationary action.

Slimcoin actually helps to test what will happen with Bitcoin in 140+ years when all of the 21 Million Bitcoins are in cirulation and we begin to see the existing money supply deflate, initially creating additional value (in theory) and then the certain very slow decent back down to 0 worth ? Again, I describe the economic principal that 'you cannot trade in diminishing intangibility' - fact.

Certainly in our recent history only government institutions and issuing monetary authorities have been involved in the creation and/or destruction of the money supply.

See: http://www.theatlantic.com/business/archive/2011/04/the-destruction-of-money-who-does-it-why-when-and-how/236990/

See: https://wikipedia.org/wiki/Money_creation

See: https://wikipedia.org/wiki/Money_supply

I cannot think of another direct example where the destruction of money (or in fact any form of commodity) is directly linked to the creation of new money, without being directly linked to the economic principals of supply and demand / inflation and deflation.

I'm no economist - is their a direct term for this - or is this indeed something totally new ?

Finally, here is Philomena Cunk on 'Money' from "Moments of Wonder." - https://www.youtube.com/watch?v=Z-YKw8w-e50    

And no, PoW is not luck based, not any more than on other coins, the more hash power you got the more of a chance to hit a block.]And no, PoW is not luck based, not any more than on other coins, the more hash power you got the more of a chance to hit a block.

PoB is the same deal, the more coins you burn the more chance you have to hit a block. PoB and PoW are very similar.

This is the crypto currency equivalent of ERNIE - See: https://wikipedia.org/wiki/ERNIE#ERNIE

Well kind of similar anyhow. 

[d5000]

When I first read that and started searching, I found Counterparty, but after reading it I discovered that they only used PoB for initial bootstrapping by burning BtC for a limited time. Sad face.  I haven't found any others yet except slimcoin.

CounterParty doesn't need another consensus mechanism, it's piggybacking off of Bitcoin's PoW. It would be silly to.

Yes, Counterparty and Levelcoin (I don't know if it still exists) use PoB only for "bootstrapping a currency out of another".

In fact, with Slimcoin in operation, the wiki article http://en.bitcoin.it/wiki/Proof_of_burn should be updated. There, the first sentence is:

Proof of burn is method for bootstrapping one cryptocurrency off of another.

It should be something like:

Proof of burn is a consensus method and an alternative to Proof-of-work and Proof-of-stake. It is used for the distribution of coins among users of a cryptocurrency via block rewards and for bootstrapping one cryptocurrency off of another, being also a potential method to secure the blockchain.

Unfortunately I have no write permissions for the wiki (and my English is perhaps not good enough), someone here has and can update this?

[d5000]

I was now granted access as an editor to the Bitcoin wiki. I have updated the Proof of burn page (http://en.bitcoin.it/wiki/Proof_of_burn) with the following additions:

- the introduction was wrong, as it is not only a method to "bootstrap" a currency out of another, but the original author specifically conceived it as a descentralized consensus method and an alternative to Proof of work / Proof of Stake. I corrected this.
- I added the current implementations (Slimcoin, the now defunct TGCoin which uses pretty the same implementation and the bootstrapping used in Levelcoin and Counterparty). Because of the rules of the Bitcoin wiki, which restrict "altcoin" content, I limited these additions strictly to the technical side of the implementation.

I didn't touch Iain Stewart's original content, because it's of high historical significance and it should stay there unchanged.

Feedback / possible additions to the article are welcome! It would be interesting, above all, what people think if Proof of Burn could be implemented in Bitcoin itself in the future or if there are any "hard" protocol rules that forbid it.

[clemahieu]

It seems like the reward will always have to be > burn otherwise no one would do it so burning is always net-positive meaning everyone wants to do it as fast as possible to claim the rewards.

A mechanism would need to be made to fairly select who gets the reward among the set of all people trying to burn.  In the best case this would be evenly distributed among all the people trying to do a burn.

If everyone in the network was participating in burning equally, everyone is getting an equal reward at the expense of everyone else, do we need a reward system at all?  Everyone is getting the same reward.

If a subset of people in the network are participating in the burning then that subset is getting a reward at the expense of everyone not in that subset, is this desirable?  Since there's no physical limitation to burning it seems like in the end the person with the largest balance will get the largest reward in the long run.

[monsterer]

I did a bunch of analysis on Proof of Burn to asses whether it could cleanly (and as elegantly) replace POW as a way of achieving consensus, but I had to conclude that it couldn't principally because of the finney attack.

More details here:

https://bitcointalk.org/index.php?topic=1182677.msg12446394#msg12446394

2) Finney attack. It is completely trivial for an attacker to generate an infinite sequence of valid blocks in which he is the solo participant and is also the winner. Since the chain is ordered by maximum burn, this makes any double spend profitable because he can simply dump a massive pile of finney blocks on the fork containing his double spend. Using block timestamps to discard quickly submitted blocks is not a viable solution, since timestamps in a p2p system are unreliable.

[BARR_Official]

In case you haven't heard about it, you might want to check out what we're doing with Multi-Proof-of-Burn as an ongoing and variable method of distribution.

We swap for burned altcoins, with the goal of burning/swapping the entire available supply of an altcoin;  then we move to a different altcoin.  We only launched 2 weeks ago, but we've burned almost a third of the supply of Keycoin, almost a third of Fractalcoin, and almost half of all Sapience coins.

https://bitcointalk.org/index.php?topic=1219460.0

[d5000]

It seems like the reward will always have to be > burn otherwise no one would do it so burning is always net-positive meaning everyone wants to do it as fast as possible to claim the rewards.

It is true that the "expected" total reward (for a participant) must be higher than the burnt amount of coins. If the "total burnt amount" is very high, it can lead to a situation where it is not profitable to burn coins in this moment. In a mature market it can be expected that this will lead to an equilibrium where there will never be "too much" nor "too few" coins burnt.

This equilibrium should lead to a situation where burning it is not guaranteed to be profitable, but with a certain risk it can lead to profit - but in a certain amount of time, e.g. in some months. That means that a "burnt coin" can be considered a long-time investment in the coin. My theory is that this mechanism can stabilize the coin value a bit as these long term investors cannot sell their burnt coins (they can sell their private keys, but in a trustless environment this is very difficult).

If everyone in the network was participating in burning equally, everyone is getting an equal reward at the expense of everyone else, do we need a reward system at all?  Everyone is getting the same reward.

This situation is unlikely to happen, as for this there must be a very even distribution of coins.

If a subset of people in the network are participating in the burning then that subset is getting a reward at the expense of everyone not in that subset, is this desirable?  Since there's no physical limitation to burning it seems like in the end the person with the largest balance will get the largest reward in the long run.

Yes, that is true and that is basically the same "problem" like in Proof of Stake, ("rich get richer") but with an important difference. Burnt coins can not be moved (and spent) inmediatly because they are destroyed when burnt; you only can spend your profit after the rewards have been paid. In the situation I describe above, it will last several months to get a profit when PoB mining. This means that a "burning miner" is locking coins for some months.

So the game is a little bit different compared to PoS: it's not wealth but risk what is rewarded, because the value of a PoB currency can drop during these months.


@monsterer: Thank you for your analysis. I will respond in your thread after I've read more material regarding the attacks you're mentioning. A quick question: Are the attacks you're describing also possible for a pure Proof of Stake system (and so comparable to the "nothing at stake" problem)?

[monsterer]

@monsterer: Thank you for your analysis. I will respond in your thread after I've read more material regarding the attacks you're mentioning. A quick question: Are the attacks you're describing also possible for a pure Proof of Stake system (and so comparable to the "nothing at stake" problem)?

The main POS chains have a deterministic block production order making producing more than one block at a time impossible. In my design, I wanted something as elegant and permissionless as POW, which only follows the longest chain rule, regardless of participants.

I wanted to get away from the situation in POS where the cost of producing a double spend is a simple constant proportional to your stake, which I don't believe is a tenable design for a world currency. On the limit, my POB design collapsed down to plain POS, which is where I stopped

[d5000]

The main POS chains have a deterministic block production order making producing more than one block at a time impossible. In my design, I wanted something as elegant and permissionless as POW, which only follows the longest chain rule, regardless of participants.

Without PoW or some other external resource "wasted", having a totally objective blockchain security mechanism is is probably impossible. But as Vitalik Buterin points out in his well known article about Proof of Stake and Weak Subjectivity, that may not be a problem at all. Proof of Burn should have very similar properties to Proof of Stake.

I wanted to get away from the situation in POS where the cost of producing a double spend is a simple constant proportional to your stake, which I don't believe is a tenable design for a world currency. On the limit, my POB design collapsed down to plain POS, which is where I stopped

My understanding is that the difference lies in the fact that burning in a PoB system is always risky because there is a probability that your earnings from rewards will be less than your burnt amount. So the double spend cost is not completely proportional to stake but to the risk the "burner" is wanting to take. (In fact, if you are more wealthy you will be able to burn more coins, but in Bitcoin occurs something similar, as if you're more wealthy you can buy more hashing power).

But that has (if I don't oversee something) no implications for security, only for the "fairness" of the distribution mechanism. That's why I consider Proof of Burn an interesting alternative to PoS.

[nutildah]

I'm just wondering, has there been any new PoB coins of note in the last 3 years?

So far on the list I have:

-Counterparty
-Slimcoin

[d5000]

Iain, if you are here still, there is a new coin "on the block" which is using exactly your idea but calling it "Hive Mining". It's Litecoin Cash.

The Whitepaper, in my opinion, does not add nothing substantial to the original concept, only that the coins "work" for a relatively short time in comparation to Slimcoin, the first coin that has used the concept.

However, Litecoin Cash does one thing terribly wrong: they combine PoB with a "community fund", which is very likely centrally managed - as alternative to "burn" the coins you can send them to the community fund. Thus, community members can do some kind of "circle mining": they ensure they qualify for a bounty and then send money to themselves via the community fund.

[BARR_Official]

I'm just wondering, has there been any new PoB coins of note in the last 3 years?

So far on the list I have:

-Counterparty
-Slimcoin

BARR burned, redeemed, and consolidated about 100BTC worth of altcoins in 2015 and 2016. 

It's still available to trade 24/7 on the NXT Asset Exchange, and can never be delisted as long as NXT exists.